Used-Car Shoppers Find Mismatch Between Needs and Inventory | Edmunds

Used-Car Shoppers Find Mismatch Between Needs and Inventory

Used-car shoppers searching for a deal are favoring higher-mileage vehicles with lower prices, according to the Edmunds Used Vehicle Market Report for the third quarter of 2017. This demand has created a mismatch between the higher-priced, low-mileage off-lease vehicles that are hitting dealer lots in large numbers and the more affordable vehicles that consumers prefer.

"Consumers are driven by price," said Ivan Drury, Edmunds senior manager of data strategy. "They need something cheap, so they bite the bullet and are willing to buy a vehicle with more mileage."

The influx of late-model off-lease vehicles, particularly SUVs and trucks, has gradually pushed up used-car transaction prices to an average of $19,402. One positive side effect is that the the average mileage that's been put on these vehicles has dropped 12 percent since the third quarter of 2012.

While newer, low-mileage used vehicles are plentiful, Edmunds data shows that they tend to sit longer at dealerships. For the most recent model years, a used vehicle with low miles lingers because its retained value is close to a new vehicle's value. For example, a 2016 model year vehicle takes an average of 51 days to sell. A 2013 model year vehicle sits for 42 days. A 2010 model year vehicle lasts just over a month: an average of 34 days.

Price is uppermost in shoppers' minds. So to stay within a budget, they are forced to make trade-offs when it comes to a vehicle's age, mileage and amenities.

If the lowest-mileage, newest used cars are too pricey, the next option is a newer used car with more miles on the odometer. Do shoppers buy that 1-year-old or 2-year-old vehicle with higher miles but more up-to-date features? Or would it make more sense to choose a less expensive car that is older (3 to 5 years) and that has fewer miles but also might have fewer modern amenities? Or will they go down yet another rung and look for an older car with even more miles?

It seems they will, if depreciation is any indicator. Many older, more affordable vehicles have more than 100,000 miles on their odometers. That much mileage used to be a red flag for shoppers. But it does not appear to be the psychological barrier that it once was, according to the report. In fact, a vehicle's value does not plummet after 100,000 miles, nor is it significantly better just before the 100,000-mile mark, according to Edmunds data. The depreciation curve remains fairly linear just above and just below the 100,000-mile mark.

Trucks and SUVs are less susceptible to depreciation since they are perceived to be more rugged and durable, and they take longer to reach 50 percent depreciation than do midsize sedans.

For now, the more affordable higher-mileage vehicles will continue to be more popular. But they are harder to find. Even older vehicles are no longer an automatic bargain since inventory is being depleted and their prices remain relatively high.

The best advice for used-car shoppers as the year ends is this: Keep an eye out for late-model off-lease cars. Edmunds analysts predict that their inventory will continue to swell, and dealerships will be likely be more motivated to sell them at a discount. It's also smart to buck the SUV trend and focus on sedans. They'll yield the best deals.

And if you're someone who's hanging on to an older SUV and thinking about trading up for a new vehicle, this could be a great time, Drury said. "You'll have the chance to take advantage of record-level new vehicle incentives and year-end savings, as well as get top-dollar for your current vehicle."

You can find the complete report at the Edmunds Industry Center.

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